Team composition and labor allocation in audit teams: a descriptive note

Abstract

The purpose of this descriptive paper is to describe, illustrate, and provide a deeper understanding of team composition and labour allocation in audit teams by quantifying the exact value of resources at different levels of the audit production. Audit teams have been considered as a black box in audit research. Therefore, we report descriptive statistics on (levels and proportions of) hours and costs allocated to auditor ranks (and the number and value, i.e., billing rates, of auditors for different ranks and the entire team) to shed new insights on audit teams. Design/methodology This study utilizes a proprietary dataset containing disaggregated information on hours, costs, and billing rates for each team member in each of 908 audit engagements. The data is provided by a Swedish Big 4 audit firm. We use a purely descriptive approach and categorize auditors into seven ranks. As size and the publicly listed status are very important determinants of audit production, we split engagements in public and private companies and report statistics for size quartiles of both public and private clients. Findings The paper provides descriptive statistics for (1) client size, (2) audit team members, (3) audit hours, (4) audit costs, (5) proportion of audit hours, (6) proportion of audit costs, (7) billing rates, and (8) variation of billing rates. Results show that compared to private clients, the audit firm allocates higher effort from auditors in higher ranks and lower effort from auditors in lower ranks to public clients. Another finding is that allocation varies with client size for private clients, but less so for public clients. Originality/value In an area with sparse literature, this descriptive study serves as a first step to improve our understanding and guide future research. It provides concrete support for previously known theory.

How do audit team industry and client‐specific experience impact audit effort and audit fees?

“…The average team has 11.65 years of auditing experience ( TEAM GENERAL EXP ) and consists of 5.7 auditors ( TEAMSIZE ). We report a team size smaller than the average team size of 10 reported in Che and Svanström (2019). Audit teams with higher levels of industry and client‐specific experience also have higher levels of general experience.…”

“…The clients in the sample range from large audits (1140.30 hours; $A299,000 fees) to small audits (32.80 hours; $A3,250 fees), with a median of 181.30 hours and $A32,432 fees. In contrast, using a Big 4 Swedish firm sample Che and Svanström (2019) report median audit hours of 301, and Causholli (2016) reports 1407 hours. Panel C of Table 1 includes the descriptive statistics for the categorical control variables.…”

“…Internal experts are a negligible percentage. Using different labor ranks, Che and Svanström (2019) report partners and directors exert 8% of total hours, managers 13%, assistant managers 21%, seniors 22% and staff 17%. In contrast with a sample of much larger audits, Causholli (2016) reports that partners represent 6% of audit time, managers 16%, in charge auditors 27% and staff 50%.…”

Auditor ethics: do experience and gender influence auditors’ moral awareness?

“…For example, many audit decisions are made by teams. Our findings of the link between moral awareness and professional experience and gender at the individual level may have implications for audit team composition (Che and Svanstrom, 2019), as individual moral awareness most likely impact ethical decisions made by audit teams (Chen et al, 2020). We hope to have provided a stepping stone for future research that wishes to study moral awareness in an audit context.…”

The auditor : Creating a concept of the auditor through auditors' own perceptions and understandings of their work in relation to boundary-setting forces

“…This dissertation primarily considers auditors who primarily audit small and medium-sized companies, and findings regarding them may not be generalizable to the concept of the auditor in public companies. Auditing small and medium-sized companies differs from auditing public companies in several respects, such as regulations, constraints on the monitoring role of the auditor due to the separation between ownership and control (Collin et al, 2018), and audit team composition (Che & Svanström, 2019), all of which may affect public auditors' views of themselves and their environment. Prior research has also showed that auditors' understandings of the concept of audit quality differ based on whether they audit public or private companies (Brivot et al, 2018).…”